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Breiding v. Eversource Energy

United States District Court, D. Massachusetts

September 11, 2018




         I. Introduction

         A putative class of retail electricity consumers residing in New England (collectively, “Plaintiffs”) have filed this lawsuit against Eversource Energy (“Eversource”) and Avangrid, Inc. (“Avangrid”) (collectively, “Defendants”), alleging violations of the Sherman Act, 15 U.S.C. § 2, and various state consumer protection and antitrust laws. D. 33. Plaintiffs assert that Defendants restricted New England's supply of natural gas, a key component in the generation of over half the electricity in New England, and, as a result, caused New Englanders to pay nearly $3.6 billion dollars more for retail electricity. D. 33 ¶¶ 1-2. Plaintiffs seek damages and injunctive relief, including under the Clayton Act, 15 U.S.C. § 26. Defendants have moved to dismiss the amended complaint. D. 41; D. 42. For the reasons set forth below, the Court ALLOWS Defendants' motions to dismiss.

         II. Standard of Review

         In considering a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6), the Court will dismiss a pleading that fails to allege plausible claims. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “This standard is ‘not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.'” Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016) (quoting Iqbal, 556 U.S. at 678). A claim must contain sufficient factual matter that, accepted as true, would allow the Court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).

         There is no special pleading requirement for motions to dismiss in the context of an antitrust action. In re Carbon Black Antitrust Litig., No. CIV.A.03-10191-DPW, 2005 WL 102966, at *5 (D. Mass. Jan. 18, 2005). Nevertheless, “it is not enough merely to allege a[n] [antitrust] violation in conclusory terms.” E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass'n, Inc., 357 F.3d 1, 9 (1st Cir. 2004). Instead, the “complaint must make out the rudiments of a valid claim.” Id Therefore, “[w]hen the requisite elements are lacking, the costs of modern federal antitrust litigation and the increasing caseload of the federal courts counsel against sending the parties into discovery when there is no reasonable likelihood that the plaintiffs can construct a claim from the events related in the complaint.” In re Carbon Black Antitrust Litig., 2005 WL 102966, at *5 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)). “With that said, a complaint should be dismissed only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Id (internal quotation marks and citations omitted).

         III. Factual Background

         Unless otherwise noted, the following facts are drawn from the amended complaint, D. 33, and are accepted as true for the consideration of the Defendants' motions to dismiss.

         A. Regulatory Framework for the Interstate Transmission and Sale of Natural Gas and Electricity

         1.FERC 's Authority to Regulate the Transmission and Price of Natural Gas

         Between the 1950s through the 1970s, the Federal Power Commission (“FPC”) strictly regulated both the wellhead price[1] of natural gas and the interstate transmission of natural gas pursuant to the Natural Gas Act. D. 33 ¶ 72; see E. & J. Gallo Winery v. EnCana Corp., 503 F.3d 1027, 1036 (9th Cir. 2007) (“Gallo II”). Beginning in 1978, however, Congress enacted legislation to reduce regulatory oversight of the price of natural gas. Id. ¶ 74. Congress further deregulated the price of natural gas through the enactment of the Natural Gas Wellhead Decontrol Act of 1989, which prohibited FPC's successor, the Federal Energy Regulatory Commission (“FERC”), from imposing any price regulations on “first sales” of natural gas at the wellhead. Id ¶¶ 74-75. “First sales” include sales by a natural gas producer to a pipeline or a direct purchaser. Id ¶ 75. In 1992, FERC issued Order No. 636, which permanently severed the sale of natural gas as a commodity from the sale of natural gas transmission as a service. Id ¶ 76. Following Order 636, FERC allowed “natural-gas companies subject to [its] jurisdiction to charge rates for gas determined by market demand.” Gallo II, 503 F.3d at 1038. In short, FERC replaced regulated rates for natural gas with market-based rates. Id at 1039.

         FERC still retained authority to oversee rates charged for the transmission of natural gas. Id ¶¶ 77, 80, 85. Because natural gas transmission is often a “natural monopoly, ” (i.e., where a single pipeline infrastructure is the only source of natural gas transportation in a given area), FERC is charged with ensuring that the transmission monopoly is not abused and that prices are “just and reasonable.” Id ¶¶ 80, 85. FERC does not regulate the local, retail sale of natural gas after it leaves interstate pipelines. See id ¶ 54.

         1.FERC's Authority to Regulate the Transmission and Price of Electricity

         The Federal Power Act (“FPA”), 16 U.S.C. § 791a et seq., authorizes FERC to regulate the “transmission of electric energy in interstate commerce” and the “sale of electric energy at wholesale in interstate commerce.” Id ¶ 49 (quoting 16 U.S.C. § 824(b)(1)). In particular, the FPA obligates FERC to “oversee all prices for those interstate transactions and all rules and practices affecting such prices.” F.E.R.C. v. Elec. Power Supply Ass'n, U.S., 136 S.Ct. 760, 782 (2016). However, FPA places beyond FERC's power, leaving to the states alone, the regulation of any other electricity sale, including the retail sale of electricity. D. 33 ¶ 49 (citing Elec. Power Supply Ass'n., 136 S.Ct. at 768).

         B. Natural Gas and Electricity Markets

         Plaintiffs allege that Defendants' anticompetitive conduct in the natural gas transmission market artificially inflated the commodity market price of natural gas and the wholesale price of electricity, resulting in higher retail electricity prices for New Englanders. See, e.g., D. 33 ¶ 165. Defendants' conduct in the upstream natural gas transmission market allegedly impacted downstream retail electricity prices due to the relationship and connection between the markets at issue in this litigation. For example, Plaintiffs assert that the price of natural gas is the most significant factor in determining the price of wholesale electricity because natural gas-fired power plants are the primary generators of electricity in New England. Id. ¶ 68. An increase in the price of natural gas due to a shortage in natural gas supply, therefore, will directly impact the price of wholesale electricity. Id. ¶ 121. In that same vein, artificially inflated wholesale electricity prices result in artificially inflated retail electricity prices. Id. ¶ 63. Accordingly, where, as alleged here, Defendants restricted the natural gas supply to New England, Defendants allegedly caused the market price of natural gas to increase, resulting in an increase in wholesale and retail electricity prices. Id.

         With the regulatory framework and Plaintiffs' allegations in mind, the Court now turns to the New England energy markets at issue in this litigation: (1) the commodity market for natural gas, (2) the natural gas transmission market, (3) the wholesale electricity market and (4) the retail electricity market.

         1. Natural Gas Commodity Market

         The natural gas market encompasses two transactions: (1) the purchase of natural gas; and (2) the transmission of natural gas from seller to purchaser. Id. ¶ 76. With respect to sales of the commodity itself, natural gas is sold to consumers either directly from gas producers via contracts called “gas futures” or through the “spot market.” Id. ¶ 86. Futures contracts allow gas producers to sell a specific quantify of gas at some predetermined future time. Id. ¶ 87. Purchasers with a steady natural gas demand, such as load distribution companies (“LDCs”), which distribute gas to retail customers, typically utilize futures contracts. Id ¶¶ 84, 87. By contrast, entities with variable or less predictable natural gas demand, including natural gas-fired electricity generators, purchase gas on the “spot” market. Id ¶ 88. The spot market allows LDCs and other direct purchasers to resell excess amounts of natural gas to which they hold title. Id ¶ 89. According to Plaintiffs, the spot market price of natural gas is not regulated by FERC and is, instead, determined by supply and demand. Id ¶ 90. Accordingly, the spot market price of natural gas increases when the amount of available natural gas decreases. Id.

         2.Natural Gas Transmission Market

         In addition to purchasing natural gas directly from gas producers or indirectly via the spot market, gas purchasers must also pay for the transmission (or transportation) of natural gas to its final destination. Id ¶ 78. In New England, a network of pipelines facilitates the transmission of natural gas from the wellhead to the purchaser (or a destination determined by the purchaser). Id. As mentioned, as compared to the price of the commodity itself, which is determined by contract or by the market, FERC oversees the rates charged for transmission capacity. Id ¶ 79.

         The process for reserving pipeline transmission capacity in New England differs depending on the purchaser. See id ¶ 99. LDCs have the option to enter “no-notice” contracts, which give them the power to reserve transmission capacity on a pipeline for a given day and time, and to adjust that reservation “upward or downward” at any time without penalty. Id By contrast, other purchasers may be penalized if they do not use the full capacity reserved on a given day or if they have to reserve additional transmission capacity. Id.

         Transmission capacity reservations play an important role in determining the supply of natural gas available to gas purchasers in New England because there is a fixed amount of pipeline capacity on any given day. Id ¶ 107. In other words, the transmission capacity reserved by one purchaser limits how much capacity is available for other purchasers' natural gas needs. Id. Even when LDCs adjust their capacity reservations downward or cancel a reservation, that capacity is not automatically released for others to use. Id. ¶ 108. For example, assume an LDC called Firm X reserved enough capacity on a pipeline to move a total of 2400 cubic feet of natural gas through a pipeline at a steady rate over the course of a 24-hour period (i.e., 100 cubic feet per hour). Id. ¶ 109. If Firm X cancelled 20 hours of that reservation and did not affirmatively release the excess capacity it reserved, then the pipeline would, for 20 hours out of the day, flow at 100 cubic feet per hour under capacity. Id. In that example, other purchasers would not be able to take advantage of the excess units of natural gas capacity caused by Firm X's downward adjustment of its capacity reservation. Id.

         3. Wholesale Electricity Market

         Wholesale electricity is typically sold by electricity generators or power plants to load serving entities (“LSEs”), which then deliver electricity to retail consumers. Id. ¶ 52. Some wholesale electricity is purchased via contracts pursuant to which LSEs agree to purchase a certain amount of electricity at a certain rate over a certain period of time. Id. ¶ 53. These fixed-rate, bilateral contracts are regulated by FERC, which may review the agreed-upon rate for reasonableness. Id. More often, however, wholesale electricity is purchased through auctions between electricity generators and LSEs. Id. ¶ 54. The auctions are administered and overseen by intermediaries called Independent System Operators (“ISOs”) or Regional Transmission Organizations (“RTOs”), which are independent non-profit organizations that FERC has charged with facilitating an efficient market for wholesale electricity while also ensuring reliability for electricity consumers. Id. As part of their auction-related responsibilities, ISOs and RTOs must file with FERC a tariff that describes in detail the procedures for a given auction. Id. FERC may review or approve the auction procedures. Id In New England, auctions are conducted in accordance with the ISO New England Inc. Transmission, Markets, and Services Tariff (“ISO-NE Tariff), which was approved by FERC and describes the rules that govern ISO-NE's facilitation of auctions for wholesale electricity in the region. Id. ¶ 61 (citing ISO-NE, Day-Ahead and Real-Time Energy Markets, (last visited Sept. 10, 2018)).

         There are two types of auctions: (1) “same-day” auctions for immediate delivery of wholesale electricity to LSEs experiencing a spike in demand for retail electricity, and (2) “next-day” auctions to satisfy expected demand the following day. Id ¶ 54. In both instances, the auction process is as follows. First, an ISO (or RTO) obtains orders from LSEs indicating how much electric energy is needed over a given period of time. Id ¶ 55. Second, the ISO obtains bids from electricity generators specifying how much electricity can be produced during the relevant time period and how much they propose to charge for it. Id Finally, the ISO accepts the generators' bids in order of price (from lowest to highest) until the total LSE demand is satisfied. Id The price of the last unit of electricity purchased is then paid to all generators whose bids were accepted, even if their offer was lower. Id.

         For example, suppose that LSEs inform their ISO that they require 275 units of electricity for the day. Id ¶ 56. Also assume the ISO receives the following bids from electricity generators: Generator A offers 100 units of electricity for $10/unit; Generator B offers 100 units of electricity for $20/unit; Generator C offers 100 units of electricity for $30/unit; and Generator D offers 100 units of electricity for $40/unit. Id The ISO will accept Generator A's $10/unit bid (and all 100 units offered); then Generator B's $20/unit bid (and all 100 units offered); and then Generator C's $30/unit bid (but only the first 75 units offered). Id Given that the wholesale demand from the LSEs was satisfied after the ISO accepted part of Generator C's bid, Generators A, B, and C will all be paid at a rate of $30/unit. Id. The total cost of the 275 units of electricity will be split proportionally amongst the LSEs, according to the units of electricity ordered by each. Id.

         4. Retail Electricity Market

         The wholesale electricity prices paid by LSEs are passed on to retail customers. Id. ¶ 63. Accordingly, the price of wholesale electricity influences the cost of retail electricity. Id. ¶ 60.

         C. Alleged Anticompetitive Conduct

         1. Defendants' Alleged Market Power

         Plaintiffs allege a monopolization scheme in which Eversource and Avangrid each allegedly abused their power over the retail electricity market in New England through anticompetitive conduct in the upstream natural gas transmission market. Id. ¶¶ 5-8; D. 48 at 39. Plaintiffs contend that Defendants possess the power to raise the price of electricity in New England because they can restrict the amount of natural gas flowing into the region and, therefore, the amount of natural gas available to fuel natural-gas-fired electricity generators. D. 33 ¶ 94. Plaintiffs point to several aspects of Defendants' energy businesses to suggest that Defendants controlled New England's natural gas supply and, therefore, the price of retail electricity. For example, New England's principal natural gas pipeline, the Algonquin Gas Transmission Pipeline, is owned, in part, by Defendant Eversource. Id. ¶ 95. Both Eversource and Avangrid also own and operate, through their subsidiaries, substantial “natural gas utilities” known as LDCs-which purchase natural gas directly from gas producers and, in turn, distribute natural gas to retail consumers. Id. ¶ 97. Of the eight largest LDCs in New England, half are owned by Eversource or Avangrid.[2] Id. As a result of their LDC operations, Eversource and Avangrid possess a large number of “no-notice” contracts for natural gas transmission capacity along the Algonquin Pipeline.[3] Id. ¶ 99. As mentioned, no-notice contracts allow LDCs to adjust their transmission capacity reservations upward or downward at any time and without penalty. Id.

         In addition to their natural gas businesses, Defendants Eversource and Avangrid, through their respective subsidiaries, operate retail electric utilities or LSEs, which provide electricity to millions of residential, commercial and industrial customers in New England. Id. ¶ 101. The price of electricity sold by Defendants' retail utilities is driven, in large part, by the market-wide wholesale price of electricity established within the ISO-NE market. Id. ¶ 104. When the price of wholesale electricity established within the ISO-NE market increases the price of electricity sold by Eversource and Avangrid to their respective retail customers similarly increases. Id.

         Eversource and Avangrid also own and operate renewable electricity resources such as hydroelectric, wind and solar generating facilities. Id. ΒΆ 105. Plaintiffs allege that these facilities have low variable operating costs and, as a result, are more competitive than natural ...

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